Monday, December 30, 2013

Help the average person, to help the economy

Bob Janjuah on why he thinks that the Fed strategy for money printing was not really the best way to boost the economy. On a recent interview on CNBC market review, he says 
"If you give people whose average net worth is $50 million another $1 million, they're not going to spend it. But if you give someone whose net worth is zero $5,000, they'll tend to spend it."

Thursday, December 26, 2013

Wealth gap still growing

I think these policies [money printing] aren't achieving the success in the real economy that they were meant to achieve.

What you've seen is that (the wealth) gap has got bigger and bigger and bigger during the six years that we've had a Democrat president.

Wednesday, December 11, 2013

Spending power not distributed equally

We've ended up with an enormous skew in the distribution of wealth and therefore spending power.

The big problem is this: If you give people whose average net worth is $50 million another million dollars, they're not going to spend it. But if you give someone whose net worth is zero or $5000, they'll tend to spend all of it

Monday, December 9, 2013

What QE has done is......

What quantitative easing has done, aside from QE 1, is benefited the owners of capital. We've seen that through stock markets, through the payment of dividends, and through those people that can take leverage at the Fed window.

Monday, November 18, 2013

What would I buy now if I had 1 year ?

Bob Janjuah when asked what financial assets, would he own now if he had to hold it for a year? 

Bob Janjuah: My answer remains strong balance-sheet corporate credit spread (yields may be expensive, but spreads are not), Italian government debt, and the USD (esp. vs JPY). As one never knows, I’d also have small speculative ‘long-risk’ positions in bank equity, via options, just in case the speculative bubble takes longer to peak and peaks at levels even higher than forecast above.

Wednesday, November 13, 2013

Sell when VIX is at 10

The VIX index at 10 would, to me, indicate that the time is then right to get seriously positioned for a major risk reversal, but until then any Q4 2013 dip (as per 3 above) would to me represent a buying opportunity into my expected high in Q1 2014. 

As a stop loss for this Q4 2013/Q1 2014 high, consecutive weekly closes in the S&P500 above 1850 would stop me out.

Tuesday, November 12, 2013

Economy needs to rebalance to real economics

Beyond Q1 2014, the longer term will all likely be driven by the growth data and the credibility of policymakers and what seems like an all-in ‘bet’ on QE as the solution to our ills. It is easy to argue that the major real impact of this policy has merely been to make the rich – the top 10% – ‘richer’, at the expense of the remaining 90%.

It seems pretty obvious to many that while the last five years has all been about policymakers being ‘reverse hijacked’ by financial markets and financial market players (the ‘top’ 10%), the next five years HAS to be about a rebalancing towards the ‘real economy’ and the bottom 90%, at the expense of the top 10%. This shift in policy emphasis will not be a happy time for financial markets and speculators while the transition happens, but in the very long term will be seen as a major positive event, in my view.

Certainly, the alternative (and current policy) of waiting for some mythical wealth trickle down impact to take us back to the seemingly good old (debt driven) days of the 00s is, in the long run, a delusion that is also likely to result in another financial market and economic failure to rival the very failure we are still, five years on, trying to address!

Monday, November 11, 2013

Market rally could continue for few months

Between now and the end of Q1 2014, when I expect to see a major higher high in the S&P in the 1800/1850 range, I would also caution that we could see an interim sell-off that may surprise. Specifically I feel that between now and year-end, especially over the rest of November, we could see a risk-off period that, for example, takes the S&P from 1775 to perhaps 1650/1700, or even as low as the 1600/1650 area.

The key here is that, I think in the very short term, markets have priced out pretty much all the risk in markets, and have priced in pretty much all the ‘good’ news. As such I feel sentiment and positioning are currently very vulnerable, especially to any unexpected bad news out of China, out of the eurozone, out of Japan/’Abe-nomics’, and in particular on the confirmation of Janet Yellen by the Senate.

If we do get a decent risk-off period in November, I would buy this dip on a tactical basis into the 1800/1850 S&P high target I have for Q4 2013/Q1 2014.

Friday, November 8, 2013

Expansion of the fed 'Ponzi Scheme'

The major themes are unchanged – anaemic global growth/mediocre fundamentals, what I consider to be extraordinarily and dangerously loose (monetary) policy settings, very poor global demographics, excessive debt, an enormous misallocation of capital driven by the state sponsored mispricing of money/capital, and excessive financial market/asset price speculation at the expense of any benefit to the real economy.

In the context of growth surely I am not the only person surprised at policymakers, especially in the UK and the US, where seemingly the only solution to massive financial market and economic failures is to resort to more of the same of what caused the original problems – namely debt-driven consumption, debt-driven asset price speculation, and the expansion of the ‘Ponzi’ that best describes our modern day economic ‘model’.

Personally I do not think the recent mini outbreak of growth optimism is sustainable, primarily because this optimism is based on more leverage and more asset price speculation, which in turn is based upon a set of policies (easy money) that are not credible nor consistent over any ‘real economy’ time frame that really matters. Shorter-term speculation/trading gains are a different matter of course!

Thursday, November 7, 2013

Markets could correct next year 2014

As per my June (and earlier) note(s), from a TIME perspective I still see end Q4 2013, through to end Q1 2014, as the window in which we see a significant risk-on top before giving way, over the last three quarters of 2014 and through 2015, to what could be a 25% to 50% sell-off in global stock markets.

From a LEVEL perspective, my 1800 target for the S&P into the aforementioned ‘peak’ time window (Q4 2013/Q1 2014) has pretty much already been hit. As I expect marginal higher highs before the big reversal, and while my target for this high in the S&P over the next five months remains anchored around 1800, an ‘extreme’ upside target could see the S&P trade up to 1850.

Put it another way – before we see any big risk reversal over 2014 and 2015, we need to see more complacency in markets. I am looking – as a proxy guide – for the VIX index to trade down at 10 between now and end Q1 2014 before I would recommend large-scale positioning for a major risk reversal over the last three quarters of 2014 and over 2015.

Wednesday, November 6, 2013

Bob Janjuah Market update

Since I last wrote markets have largely followed the path I set out in June. At the time I was looking for the risk sell-off that began in May (and which was sparked by Fed Chairman Bernanke’s tapering comments) to result in the S&P falling from 1687 to no lower than 1530 in Q2/Q3, and then I expected the S&P to rally (driven by the Fed’s inevitable subsequent concerns on tapering, which I felt would see the Fed heavily water down its tapering message) all the way to the high 1700s/1800 in Q3/Q4.

 By way of review: The Q2/Q3 sell-off stopped with an S&P low print at 1560 in late June; the Fed got so concerned about tapering over Q3 that it not only heavily watered down its tapering message, it abandoned it (for now!) altogether; the subsequent rally I expected has seen the S&P trade to a Q4 2013 high (so far) of 1775. Overall, my forecast set out in my June note turned out to be accurate.

Tuesday, October 1, 2013

Seek safety in strong balance sheets

If cash is too safe, then safety should be sought in the strongest balance sheets, whether one is investing in bonds, in credit, in currencies and/or in stocks. And, as a rule of thumb, (and excluding real house prices in the US) those things that have ‘gone up the most’ over the past few years are likely to be the things that ‘go down’ the most – so as well as equities, EM investors also need to be very careful. 

Thursday, June 20, 2013

Fed will taper

Tapering’ is going to happen. It will be gentle, it will be well telegraphed, and the key will be to avoid a major shock to the real economy. But the Fed is NOT going to taper because the economy is too strong or because we have sustained core (wage) inflation, or because we have full employment - none of these conditions will be seen for some years to come.

Rather, I feel that the Fed is going to taper because it is getting very fearful that it is creating a number of significant and dangerous leverage driven speculative bubbles that could threaten the financial stability of the US. In central bank speak, the Fed has likely come to the point where it feels the costs now outweigh the benefits of more policy.

Wednesday, June 19, 2013

Could see the end of the Fed at some point

This means first and foremost that while growth, inflation and unemployment all matter a great deal, the Fed cannot now either allow, or be perceived to allow, the creation of any kind of excessive leverage driven speculative (asset) bubbles which, if they collapse, go on to threaten the financial stability of the US. Imagine if this Fed were to allow a major asset bubble to blow up and then burst anytime soon (say within the next two or three years).

This time round Congress and the people of the US would be able to place the entire blame on the Fed – probably with some justification – and, if the fallout approached anything like that seen in 2008, then it would mean, in my view, the end of the Fed as we currently know it.

Monday, June 17, 2013

Fed is partially responsible for bubble

The Fed also knows that it was held at least partially responsible for creating and blowing up the bubble that burst spectacularly upon us all in 2007/2008. But very importantly, the Fed now has explicit and pretty much full responsibility for regulation of the banking and financial sector.

Friday, June 14, 2013

Central banks are hooked on money printing

There can be no doubt in my view that the global growth, earnings, incomes and fundamental story remains very subdued. But at the same time financial markets, hooked on central bank ‘heroin’, have created an enormous and – in the long run – untenable gap between themselves and the real economy’s fundamentals. This gap is getting to dangerous levels, with positioning, sentiment, speculation, margin and leverage running at levels unseen since 2006/2007.

Thursday, June 13, 2013

Rise markets rise, Japan money printing

We can certainly see a dip or two between now and the final top/the final turn. But it may take until 2014 (Q1) before we get the true onset of a major -25% to -50% bear market in stocks.

We also need to be cognizant of the Abe/BoJ developments. Along with the Fed, ‘Japan’ is one of the two major global risk reward drivers. The ECB response to (core) deflation and the German elections, and weakening Chinese & EM growth and the indebtedness of China & EM, will also matter a great deal.

Monday, May 20, 2013

Central banks trying to turn water into wine

Central banks are engaged in a hopeless attempt to turn water into wine by persisting with the idea that some form of debt-fueled asset price elevation will lead to real wealth creation, which in turn will fix all our ills.

Real wealth can only be created by innovation and hard work in the private sector, with policymakers, the financial sector and financial markets there to aid and encourage/incentivise.

Monday, April 22, 2013

Be wary of a sell off

Focus on being very tactical and liquid, whichever way you feel markets are going to trend. Now is not the time to be getting overly levered, overly "structured?, or overly illiquid with respect to portfolio positioning.

Who is Bob Janjuah ?
Bob Janjuah is a former RBS Analyst who correctly predicted the 2008 market crash. 

Article from The Telegraph dated 6/18/2008

"The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks. 

A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist. 

The bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets."

Tuesday, April 16, 2013

QE infinity could end when Bernanke leaves

"QE infinity" has driven markets to new highs but that rally could end when Bernanke leaves.

The message from me is that anyone who is different is a risk for the market. When we transition from one Fed chairman to another, things tend to happen. When we went from Volcker to Greenspan in October 1987, markets dropped up to 35 percent, so any change in that figure-head and chairman's role is a risk for the market.

The big one for me isn't so much in the detail of what the Fed might, or might not do in the next few months, it's the fact that Bernanke may well not be in that job come January next year.

Thursday, April 11, 2013

Janet Yellen appointment could scare bond market

She is far looser or more dovish than Bernanke. My issue with somebody like Yellen is that she’s potentially perceived as such a loose cannon — so loose that it would scare the bond market, whereas Bernanke has built up a certain level of credibility with the market.

A client said to me a few weeks ago that if Karl Marx was in charge of the world, he’d have Janet Yellen as his central bank governor.

Wednesday, April 3, 2013

Markets will dip then rise till end of the year

Even though the market could dip, the coming dip will be bought by investors and "celebrated".

I am fully expecting new all-time nominal highs in, for example, the S&P, into the 1,600s, once it has its first weekly close above 1,575. I think this should occur in the third quarter.

This bullishness will reign all the way until the end of the year when it will face increased scrutiny and pressure.

Global growth, especially from emerging markets will likely continue to disappoint, he said, adding that the transition from current Federal Reserve Chairman Ben Bernanke to his successor will likely disrupt proceedings.

Monday, April 1, 2013

Markets about to dip lower soon

I think we are now beginning or very soon about to begin the next (slightly bigger) dip lower, of 5 percent to 10 percent over the second quarter, taking the S&P from the 1,575/1550s down to the 1,450/1,475 zone.

Thursday, February 7, 2013

Common sense ignored during market tops

I always like to remind clients that, in the run up to the 2000 and 2007 highs, before the significant collapses that followed in the subsequent 18/24 months, markets seemed infatuated in Greenspan and his famous ‘Put’ the same way today’s teenagers seem infatuated with Justin Bieber, investor complacency was off the charts, volatility was at record lows, belief in ‘the system’ was sky high, and positioning was at extremes.

The flashing common sense warning signs were being ignored, if not mocked.

Wednesday, February 6, 2013

Bob Janjuah 2013 report triple top

In the medium term (2 quarters +/- 1 quarter), and as per the route map in my previous notes, I think risk can rally further. I continue to believe that the S&P500 can trade up towards the 1575/1550 area, where we have, so far, a grand double top.

This month, however, a correction is due, he said. He expects it to take the S&P500 down by 5 percent or so (from 1,515 to 1,440ish) over the first few weeks of February. But by the end of February and into March, the rally will resume, he said.

After the post correction rally Janjuah says, "I would not be surprised to see the S&P trade marginally through the 2007 all-time nominal high."

A weekly close at a new all-time high would I think lead to the final parabolic spike up which creates the kind of positioning extreme and leverage extreme needed to create the conditions for a 25% to 50% collapse in equities over the rest of 2013 and 2014, driven by real economy reality hitting home, and by policymaker failure/loss of faith in ‘their system’

Enjoy the dips, good luck for 2013 and beyond.

Tuesday, February 5, 2013

Expect a short term correction

Bob Janjuah expects a correction that could take the S&P500 down by 5 percent or so (from 1,515 to 1,440ish) over the first few weeks of February. But by the end of February and into March, the rally will resume.

"Tactically, over the next quarter or two, I expect to see one or two (at least) 5 percent to 10 percent dips or corrections ((there are after all many banana skins ahead in terms of politics, policy, and economic fundamentals), but which I think will be short lived,"

In a note to clients, Janjuah warns however that investors must not ignore the"flashing warning signs".

Monday, February 4, 2013

S&P500 could trade at 800 in 2014

Janjuah warns over the longer term, he is "very bearish", and forecast the S&P500 will slump throughout 2013, bottoming out in 2014 at around 800 points.

Thursday, January 24, 2013

Long term solutions needed for US

"I think we will eventually get fiscal and debt ceiling fudges in the U.S. Of course long-term credible solutions are needed… but in the interim, the knee jerk reaction of markets to fiscal/debt ceiling fudges will likely be positive."

Friday, January 11, 2013

S&P500 could goto 800

The Global Macro Strategy team has not published much in the last two months, largely because markets have unfolded very much along the lines we set out earlier in September and August, where I set a weekly closing S&P500 level of 1450 as the key pivot point for markets. Following on from the big bazookas from Draghi and Bernanke in early September, which very briefly took the S&P up above my 1450 level on a weekly close (hence triggering my stop loss), the market has performed far short of the bullish expectations of most market participants. Ever since early September and the 1475 intra-day high print on 14 September the risk-on (carry) trade has disappointed. The S&P spent most of the following month sideways around 1450, and since mid/late October sideways risk markets have given way to a risk-off phase in which credit spreads and equities have underperformed, as have peripheral bonds, and core bonds and the USD have outperformed. This is all very much against the bullish sentiment that existed and that many have kept repeating to us post-OMT and post-QEI.

If I look out 6-18 months, during which lots can happen, my bias for markets in the long-term timeframe remains very bearish. I worry about excessive debt in the West, I worry about anaemic growth globally, and I worry about both the market?s Pavlovian fixation on continued (but increasing unsuccessful and non-credible) policy stimuli and on the willingness and ability of policymakers to actually continually deliver/surprise to the upside.

If I look out 3-6 months I am open to the idea of one last parabolic spike higher in risk-on markets in this interim timeframe. I think we will eventually get fiscal and debt ceiling fudges in the US. Of course long-term credible solutions are needed, but are the most unlikely outcome. Instead we may well be 'forced' to celebrate another round of horrible fudges which DO have a consequence. Namely, that the private sector continues to ignore Bernanke and the Washington elite (who between them continue to enjoy printing significant sums of money and/or spending way beyond their means ) by instead doing the exact opposite, which means holding onto/building cash and savings, delaying spending/investment/hiring and thus hurting growth. Markets will I think worry about these negative consequences eventually (see paragraph above), but in the interim the knee jerk reaction of markets to fiscal/debt ceiling fudges will likely be positive.

Furthermore, and again on a 6 to 12 month interim timeframe, I think we could also see the ECB finally move to all out QE driven by another round of eurozone panic and driven in particular by the strong deflationary data trends that are emerging in the eurozone and which we in GMS think will get much stronger. A combo of ECB QE and fiscal/debt ceiling fudges in the US – perhaps also complimented by a short-lived centrally planned but debt fuelled and ultimately wasteful China uptick – could even cause a parabolic spike powerful enough to take S&P – briefly – into the 1500s, before resuming the longer-term march over the rest of 2013 and 2014 to the 800s.

Our secular investment bias for the last four years has been to overweight strong balance sheet non-financial corporate credit, and to overweight the largest and strongest balance sheet non-financial corporate equities. This secular bias will change eventually, but for now we doubt whether such a shift will be worthwhile until perhaps 2014. Until then, and in the absence of major new developments, we stick with this secular theme, which on a risk (Sharpe ratio) adjusted basis has proven to be the winning secular investment strategy over the last four years.

For the rest of this year (0-3 months), and with the S&P trading well below my 1450 pivot point, I remain bearish on this short-term timeframe. Based on weekly closes in the S&P below 1450 we went bearish risk (having been stopped out in September) in mid-October (see Andy's note) and we reiterate this view herein. So that also means we have been and are long the USD and core bonds, and we have been and are short not only global equities, but also peripheral debt and credit spreads. With respect to this short-term timeframe we also reiterate the stop loss at 1450 (S&P weekly close) and the 1450/1475 pivot point below which (on a weekly S&P closing basis) we are bearish and above which we see more upside on a tactical basis. I would also highlight in particular that, based on extensive client meetings, a real sense of complacency and/or fatigue has set in with respect to the rest of 2012 (most participants continue to talk a bearish 2013 when they meet with us, although it seems quite clear that true sentiment is much more hopeful). There is an overwhelming belief (or a deep desire to believe) in markets that all major risk factors have been successfully pushed out to 2013 by policymakers. It is clear that the market is not expecting nor is positioned for a big reversal in say the S&P500 down to 1300 and all else that such a move would imply. In particular, fast money has got itself long risk in an attempt 'fix' a poor year for overall returns, but must now be getting anxious that follow-through price action and buying has been deeply unimpressive. If fast money decides/is forced to cut risk this year, bearish price action could easily be exaggerated relative to volumes, as neither the Street nor real money has much appetite and/or capacity for risk between now and year-end.

As a team we are debating whether to lower our stop loss from 1450 to perhaps 1400. For now we stick with the stop loss that has served us so well. Also, there may be merit in taking profits on the risk-off trade we reinstated in mid-October when the S&P had its sub-1450 weekly close (1440) as/when the S&P500 trades down to 1350. But again, for now, we will continue to focus on 1300 as an initial major target.

Some comments on complacency and fatigue. The last few years have been difficult, especially for those that have been unprepared for how long and difficult the current crisis, which began in 2007, would be. However, as a rule, growth and earnings, incomes and jobs, and deleveraging and balance sheet trends matter. They may not all matter all of the time. But on virtually any timeframe beyond the highly tactical, and in any case whenever large pools of client money are being managed, such key items matter a great deal. Which is why I am so concerned at the number of times I have heard from participants that growth and earnings, and/or jobs and incomes, and/or debt and deleveraging now no longer should matter that much as Bernanke and Draghi will make it all better. I am the first to point out that we are living in a policymaker-fuelled bubble that will likely end very badly, where normal valuation metrics are largely meaningless.

But even if we are in a bubble, as a golden rule one should never lose sight of what matters in the real economy and in the long run. Namely: growth and earnings, jobs and incomes, and debt and deleveraging.

Investment decisions based largely on the greater fool theory and predicated by the assumption that central bankers can sustainably and credibly misprice money, supporting a significant misallocation of capital, without any major negative consequences, are in general not good investments.

Look at what has happened since mid-2007 until now, the last time this type of 'investment thesis' was exposed! Back then policymakers told us there was no housing bubble, and were asleep at the wheel when it came to the significant leverage bubble that banking and finance had become. Now of course Bernanke and his ilk are trying to convince us that QE is a good policy and that we should trust them to do the right thing at the right time to head off any new bubbles or the take-off of inflation. What else should we expect? Personally, I have little confidence in policymakers, based on their track record.